In this Section:

Follow the Right Road Map to Guide Clients to IUL

The road to retirement income can be filled with a number of potholes. Here is how indexed universal life can help smooth the ride.

Hawaii’s harrowing Hana Highway can challenge even proficient drivers with its precipitously narrow road, 617 hairpin curves and dozens of one-lane bridges. To clients, navigating toward retirement readiness may seem like traversing the Hana Highway. Having an expert at the wheel helps!

Similarly, financial professionals who are educated about agile solutions such as indexed universal life (IUL) insurance products may be able to help consumers fuel their futures. But how do you guide the discussion about IUL?

The road to attaining sufficient retirement income can be potholed by rising inflation, taxes, soaring medical expenses and long-term care costs. Today’s IUL offerings are designed to support consumer goals for accumulation, participation in upward market movement and access to multiple flexible options for income in retirement. Here is a road map to help match the new breed of IUL solutions to client needs.

Differentiate Among the Choices

IUL insurance products are not one-size-fits-all. Some consumers, particularly those who are ages 35-55 and focused on wealth accumulation, may be attracted to a powerful IUL insurance offering designed to maximize cash growth potential and options for accessing cash value,
income-tax free.

When reviewing this or any type of IUL solution with clients, be sure to tell them to consult a qualified tax expert regarding their individual circumstances. Also, please note that all tax statements in this article are based on current tax law.

Other clients may be more comfortable with an IUL product that focuses on guarantees while offering death benefit protection and the opportunity to accumulate cash value within a narrower band of volatility. These consumers (perhaps ages 40-70) may view an IUL solution as an economical alternative to a guaranteed universal life (GUL) insurance product.

To gain insight into the client’s mindset and goals, and to help determine the type of IUL insurance solution or other financial product that may be appropriate, conduct a comprehensive needs assessment at the outset of planning.

Establish the need for a death benefit — whether to protect surviving family members, help ensure business continuity or provide a charitable legacy — and proceed from there.

 Explain the What and the Why

Go beyond explaining that IUL insurance may help fulfill many needs, including the need for accumulation. Review why accumulation is so crucial to begin with. Consumers don’t necessarily know how much income they will need in retirement or which contingencies may develop along the way, and they may underestimate their life expectancy and the impacts of inflation on their spending power.

As LIMRA’s “Industry Trends” blog shared on April 19, older Americans experience higher inflation rates than other consumers, primarily due to the amount of their budgets devoted to health care. Even a low inflation rate can seriously erode purchasing power over the long run:

“LIMRA Secure Retirement Institute modeled the effect 2 percent annual inflation could have on a 20-year retirement. Using a fixed monthly income of $1,341 (the average monthly benefit paid by Social Security) and assuming that monthly expenses increase from $1,341 to $1,993 at the end of the 20-year period, the inflationary impact results in a shortfall of $73,376. When the calculation is run at 3 percent inflation, the shortfall jumps to more than $117,000.” 

Clients also may need help understanding that an accumulation strategy is important because taxes, like inflation, may impact their retirement income. And tax cuts don’t seem likely. With legions of consumers aging out of their peak earning years and the Congressional Budget Office projecting a $534 billion federal deficit for fiscal year 2016 (about $100 billion more than the 2015 shortfall), there’s no guarantee tax rates won’t increase to address fiscal challenges.

Explain to clients that an accumulation strategy leveraging IUL insurance also may be appropriate given the potential for escalating health care and lifestyle costs in retirement. According to an Urban Institute report, the median share of household income spent on health care by Americans ages 65 and older is projected to rise to 19 percent by 2040, up from 10 percent in 2010. And clients may spend less on commuting, career attire and other expenses after exiting the workforce, but the savings may be offset by higher vacation, dining and entertainment costs. 

Understand the Moving Parts

Today’s IUL products have evolved in response to carrier innovation and multiple consumer needs. These products have multiple moving parts. They include cap and participation rates, ties to U.S./
foreign indices, and integrated or optional accelerated benefit riders. When reviewing potential solutions with clients, consider the following IUL attributes:

 » Growth strategy (the potential for strong, long-term cash accumulation).

 » Volatility control features (aimed at reducing the impact of market ups and downs).

 » Options for client access to cash values (to optimize income distribution).

 » Protection features (choices for death benefit payout to beneficiaries).

 IUL products designed for robust wealth accumulation may offer many index-crediting options rather than just one or two.

For example, it’s possible to offer an IUL solution that not only is tied to a hybrid index that dynamically adjusts exposure among equities, fixed income and cash, but also features several index-crediting account options, all with guaranteed floors for loss protection in down markets.

A leaner IUL insurance policy design may build cash value more conservatively through index interest accounts and offer a guaranteed crediting bonus via account value enhancement after a specified number of years of policy ownership.

At any rate, the volatility control features of contemporary IUL insurance products merit review with clients. Consider that from 2009 through 2013 alone, there were 11 stock market corrections of 5 percent or more, according to a recent article by Jim Stack, president of Investech Research.

Also, consumers who have used dollar-cost averaging in their investment strategies, expecting this approach would be advantageous during market downturns, may not realize its potential inverse effects on their portfolios when they’re in an income-producing mode.

When clients are aware of factors that may impact a portfolio’s accumulated value and the amount of assets they may need to liquidate to help ensure a consistent stream of retirement income, they may appreciate more fully the role that modern IUL insurance solutions are built to serve. 

Review Unique Feature/Rider Combos

The loan and withdrawal features of modern IUL insurance products may come in handy whether clients wish to pay for a wedding, fund a college education, supplement retirement income, cover health care expenses, start a business or create an emergency fund. Some IUL contracts offer a unique combination of built-in features and available riders designed to help consumers leverage multiple options for tax-free income.

The riders alone may be cutting-edge, with fewer limitations than for riders on other, older types of policies. For example, when the conditions of a living benefit rider for chronic illness on an IUL insurance contract are met, the policyholder may be eligible to receive an accelerated portion of the death benefit even if the illness is not expected to be permanent.

Keep in mind, however, that cash-
value life insurance policies are subject to Modified Endowment Contract rules (see Internal Revenue Code Section 7702A) that discourage overfunding based on face amount, the insured’s age and other factors.

Cash-value life insurance also contains additional mortality charges that will increase the expense of the product. And withdrawals in excess of total premiums paid are taxable unless taken as loans (which are subject to interest charges). Given these considerations, consult a policy illustration for more information. 

Leverage New Educational Tools

New IUL insurance solutions have resulted in new educational resources. Clients and prospects may appreciate the opportunity to peruse the latest product guides with you or use an interactive, online tool to glean insights into some ways various life events may impact their retirement income. Explore web-based carrier resources developed for use during prospect meetings to enhance awareness of how IUL products are designed to help.

Given people’s profound needs along their retirement journeys, it’s no wonder the allure of IUL insurance apparently has revved up. In fact, LIMRA reported IUL premium grew 15 percent during 2015, compared with 2014.

Modern IUL solutions offer a number of features, particularly for accumulation, volatility control, tax-advantaged access to cash values and death benefit protection. These provide ample opportunity to outfit clients with financial fuel for retirement.

So, with the right selection, you can help clients enjoy a safe ride on even the most treacherous journeys through retirement.  

Kevin Benjamin, CLU, ChFC, FLMI, CRPC, is a national sales manager for AIG’s life insurance business. Kevin may be contacted at [email protected].



More from InsuranceNewsNet